How to start an online business: A step-by-step guide for small businesses
Starting an online business opens doors to global markets, flexible schedules, and unlimited growth potential.
Written by Lena Hanna—Trusted CPA Guidance on Accounting and Tax. Read Lena's full bio
Published Tuesday 4 November 2025
Table of contents
Key takeaways
• Register your business officially by obtaining a DBA name if operating under a different name than your own, securing a federal tax ID number (EIN) for banking and hiring purposes, and researching any required licenses or permits for your industry and location.
• Explore multiple funding sources beyond personal savings, including credit cards for quick access, personal loans with collateral, angel investors who meet SEC accredited investor requirements, or crowdfunding platforms that comply with securities regulations.
• Recognize that online businesses offer significant advantages over traditional brick-and-mortar stores through lower startup costs, faster execution timelines, greater flexibility in operations, and the ability to reach customers anywhere without geographical limitations.
• Structure your business planning around the same core elements as traditional businesses—developing a solid idea, creating a comprehensive plan, and establishing a realistic budget—while leveraging the unique cost-effectiveness and speed advantages of digital operations.
What goes into starting an online business?
Starting an online business requires the same core elements as traditional businesses—an idea, plan, and budget—but with lower costs and faster execution.
Online businesses can be more flexible and cost-effective than brick-and-mortar stores. According to a survey of 171 business experts, online startups typically require smaller budgets, shorter planning cycles, and can succeed with more unconventional ideas.
You’ll find practical advice and real experiences to help you launch your online business.
How to start an online business
6. Register your business and handle legal requirements
Once you’ve picked a name and structure, make your business official. Registering your business helps you operate legally and meet government requirements. Here are the key tasks:
- Registering your business name: If you’re operating under a name different from your own, you’ll likely need to register a 'doing business as' (DBA) name.
- Getting a federal tax ID number: Also called an employer identification number (EIN), this is like a Social Security number for your business. You’ll need it to open a business bank account and hire employees. The online application tool is available Monday – Friday, 7 a.m. – 10 p.m. Eastern time.
- Checking for licenses and permits: Depending on your industry and location, you may need federal, state, or local licenses or permits to operate. Visit your city and state websites to find out what you need.
Sources of extra cash
If you need more money to start your online business, you have several options:
- credit cards – interest rates are usually high
- personal loans – you may need to offer something you own as security
- friends and family – they can lend money or invest in your business; if you sell equity to friends and family who are not accredited investors, you can use exemptions like SEC Rule 505, which allows sales to up to 35 people who are not accredited, for a total of up to $5 million in a year
- angel investors – industry contacts or experienced investors who meet the SEC definition of 'accredited investor' (for example, a net worth of at least $1 million, excluding their primary residence, or a consistently high annual income)
- crowdfunding – you can raise money from a large group of people online; this often falls under SEC regulations, such as the 'seed capital' exemption, which allows for the sale of up to $1,000,000 of securities within a 12-month period
- grants – some businesses with a social or environmental mission may be eligible for grants
Disclaimer
Xero does not provide accounting, tax, business or legal advice. This guide has been provided for information purposes only. You should consult your own professional advisors for advice directly relating to your business or before taking action in relation to any of the content provided.
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